## Answers

1.

Allocated mfg. OH cost | / | Number of units | = | Indirect cost per unit | |

Commercial containers ($140 x 1600) | $ 224,000 | / | 2,000 | = | $ 112.00 |

Travel Packs ($140 x 510) | $ 71,400 | / | 51,000 | = | $ 1.40 |

2.

Activity | Estimated Indirect Costs | / | Estimated Allocation Base | = | Predetermined OH allocation rate |

Materials handling | $ 96,000 | / | 24,000 | = | $ 4 |

Packaging | $ 210,000 | / | 3,000 | = | $ 70 |

Quality assurance | $ 114,000 | / | 1,900 | = | $ 60 |

3.

Commercial Containers | |||||

Activity | Predetermined OH allocation rate | x | Actual Allocation Base used | = | Allocated mfg. OH cost |

Materials handling | $ 4 | x | 10000 | = | $ 40,000 |

Packaging | $ 70 | x | 1600 | = | $ 1,12,000 |

Quality assurance | $ 60 | x | 200 | = | $ 12,000 |

Total activity-based costs | $ 1,64,000 | ||||

Number of units | 2000 | ||||

Activity-based cost per unit | $ 82.00 | ||||

Travel Packs | |||||

Activity | Predetermined OH allocation rate | x | Actual Allocation Base used | = | Allocated mfg. OH cost |

Materials handling | $ 4 | x | 5100 | = | $ 20,400 |

Packaging | $ 70 | x | 510 | = | $ 35,700 |

Quality assurance | $ 60 | x | 765 | = | $ 45,900 |

Total activity-based costs | $ 1,02,000 | ||||

Number of units | 51000 | ||||

Activity-based cost per unit | $ 2.00 |

4.

Commercial Containers | Travel Packs | |

Activity-based cost per unit | $ 82.00 | $ 2.00 |

Traditional cost per unit | $ 112.00 | $ 1.40 |

Under the traditional system, the indirect costs were overcharged to the commercial containers and under charged to travel packs.

The costs changed under the activity based system as the costs got charged to the product lines in proportion to the usage of the various activities of materials handling, packaging, and quality assurance by each product line.

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